January 21, 2010

It's jobs, not discouraged workers

Though they represent only a small fraction of the overall labor force (roughly 0.3 percent on average from 1994 through 2007), discouraged workers have received a good deal of attention lately (here, here, and here, for example) because of the dramatic increase in their numbers during the current recession.

The term "discouraged workers" refers to individuals who are out of the labor force and respond to Bureau of Labor Statistics surveys stating that they are not looking for work because they believe no work is available, could not find work, lack necessary schooling or training, or face discrimination based on age or other factors.

The run-up in the number of discouraged workers is of particular concern to some because of the possibility that all these people (an additional 522,000 since the beginning of the recession) will come flooding back into the labor market, driving the unemployment rate even higher as soon as perceptions of job prospects begin to improve.

Say these discouraged workers were to start re-entering the labor force in 2010. How many jobs would need to be created each month to absorb them? While there is a danger in taking stocks and trying to translate them into flows, this exercise does provide some framework with which to talk about the impact discouraged workers re-entering the workforce might have on the unemployment rate going forward.

In order to make that calculation, we need to make some assumptions about how quickly the discouraged workers might re-enter the labor market. Using the previous recession and recovery as a guide, discouraged workers might return to the labor market at a slightly slower rate than when they exited it. From the fourth quarter of 2001 through the first quarter of 2005 (the previous peak in the number of discouraged workers), the number of discouraged workers increased at an average quarterly rate of 3.4 percent. From the first quarter of 2005 through fourth quarter of 2007, the number of discouraged workers decreased at an average quarterly rate of about 2.7 percent.

Applying this same ratio (3.4 percent/2.7 percent) to the 19 percent average quarterly run-up between the fourth quarter of 2007 through the fourth quarter of 2009, we could see an average quarterly decline in discouraged workers of about 15 percent. This number suggests that, if we are at a new peak of discouraged workers, we could see 414,000 discouraged workers re-entering the work force in 2010, which would represent an average of around 34,500 workers per month. This number represents 0.02 percent of the U.S. labor force in December 2009. If these discouraged workers were the only workers joining the labor force, the economy would need to create roughly 30,000 jobs each month to keep the unemployment rate the same (10 percent).1

How quickly the discouraged workers will re-enter the labor force, holding everything else constant, is not necessarily the most important question. A more significant question is how quickly the overall labor force will grow. Employment would need to grow at the same rate as the labor force in order for the unemployment rate to remain at 10 percent, which amounts to roughly 91,000 jobs per month if we use the average annual growth rate of the labor force during the three years following the 2001 recession, which was 0.84 percent.

Bottom line: While not insignificant, the number of discouraged workers that can be expected to re-enter the labor market once job prospects turn around is only a small piece of the puzzle. More focus should instead be placed on the larger issue of job creation.

By Julie Hotchkiss, research economist and policy adviser, and Laurel Graefe, senior economic research analyst, both of the Atlanta Fed's research department

Footnote: 30,000 represents 0.02 percent growth in jobs that will be needed to absorb the 0.02 percent growth in the labor force that is reflected in the 34,500 number: (131 million)*(0.0002)=26,200, or, roughly 30,000

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i cannot believe that the concern would be expressed as "all these people will come flooding back into the labor market, driving the unemployment rate even higher as soon as perceptions of job prospects begin to improve."

So what if discouraged workers coming back affect the unemployment NUMBER? It's just a reported statistic.

More important is what, if any, effect would their returning to the job market have on the ECONOMY. My instinct is to say "not much", although they might introduce additional competition for jobs and hence some slight downward wage pressure.

It's EMRATIO that you should be looking at, if you want to focus on "Jobs". That, and the distribution of income between corporate profits, proprietors' income, and workers' income (Page 21 of the National Economic Trends report).

Corporate earnings reports for the past few quarters tend to show corporations maintaing stable earnings despite revenue declines. Earnings are being sustained by cutting "costs"... procurements and wage-related expenses are being held down. But neither of those leaves workers (or vendors) with cash to spend. While this practice makes sense at the micro level, given the incentives of the individual corporations, at the macro level is a vicious cycle -- unsustainable economic suicide for the nation as a whole -- because it is individual spending that drives the economy.

We cannot borrow our way to prosperity, and neither can we cost-cut our way to prosperity. We have to get back to producing our way to prosperity, not with "credit" and "debt", but with real capital.

Now, the issue with job creation is partly about costs of employment - tax rates, the badly-timed raise in the minimum wage, and so on - but it is much more about *complexity*, *uncertainty* about costs, and about the business climate. It is simply too hard to start a new business right now, and the risks of rising costs and/or radical changes in the economic climate make it difficult for entrepreneurs to justify taking the plunge. There are simply too many trial balloons and bad policy ideas being floated as serious proposals.

Also, many sectors of the economy (housing and commercial real estate) are so massively overbuilt that demand will not outstrip existing supply for a decade in many areas, even with normal growth.

So, the incentives are weak and the risks high. Would YOU be willing to go out and risk your own capital (both time and money) to start a new business in this "economic weather"?

The economy will not improve until we stop coddling the banksters, stop tolerating financial waste, fraud and abuse, and start giving entrepreneurs a stable, simple business-creation platform upon which to build the next wave of the American Dream...

"It is simply too hard to start a new business right now, and the risks of rising costs and/or radical changes in the economic climate make it difficult for entrepreneurs to justify taking the plunge."

I'm not so sure. I think access to capital is a real headwind for small and even larger firms. The ATL fed has talked about this and I believe they are correct here. What I think, or am afraid we need is another Henry Ford, or Bill Gates. We've got to find some way to fire up the machine to put these people back to work. While the Fed has it's tricks, it isn't the end all be all of employment or the economy.

I'd like to see in a different world, if such a thing were possible, what deregulated Power would look like. Not California style, but similar to the 1984 break up of AT&T. I reckon done right this could create millions of new jobs. But such a thing cannot be tested. This is the sort of 'firing' up of the machine that may be needed if the current system can't absorb all the inputs.

I wonder if Ms. Hotchkiss would agree with Bill Gross' "New Normal" theory? I also wonder what Bill Gross thinks about the current level of discouraged workers and if it is temporary or a component of his "New Normal"?

Great post. I enjoyed the column and agreed with everything, until the very end.

I was surprised to see you use labor force growth (which is itself a function of participation) instead of working age population growth. I find that using the later implies much larger net job growth to maintain the unemployment rate. Using the latter also allows us to use population estimates from the census (very accurate in the near-term) instead of extrapolating growth rates from previous recoveries.

Nonetheless, your point remains: discouraged workers are not themselves an additional problem. Jobs are the problem.

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January 13, 2010

The demand and supply of bank credit: A small business snapshot from the Southeast

In his recent speech, Federal Reserve Bank of Atlanta President Dennis Lockhart highlighted concerns about the linkage between commercial real estate loan problems at banks and small business financing during the economic recovery:

"The overall commercial real estate debt in the financial system is smaller than residential, but it is disproportionately concentrated in small and regional banks. Smaller banks are a significant source of credit for small businesses, and in most recoveries we look to small businesses to generate a significant number of jobs."

President Lockhart also referenced the results of a survey of small business finances the Atlanta Fed conducted late last year.

"A recent small business survey performed by the Atlanta Fed suggested that business loan demand was down primarily because of weak sales and modest revenue prospects. The credit availability picture was mixed. No surprise, construction-related firms and manufacturers had the most trouble obtaining credit during the last six months. But others did well in having their credit needs met. Of more than 200 respondents, nearly half did not look for credit at all, mostly citing weak sales or sufficient cash reserves."

The survey President Lockhart was referencing was conducted in early December and included responses from 206 small businesses across the Sixth Federal Reserve District (the states of Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee) regarding their access to credit. The intent of the survey was to include some additional small business perspectives to supplement our other monetary policy information-gathering efforts.

The firms in the survey were contacts established through our Regional Economic Information Network. In that sense, the survey is not based on a pure random sample of firms. However, the industry distribution of respondent businesses was reasonably representative of the industry mix of the Sixth District (see the chart). The average firm size in the survey was about 22 employees, with around 40 percent of respondents having between one and nine employees.

So, how did businesses surveyed respond? Slightly more than half the respondents said that they had sought to obtain a loan or line of credit from a bank in the last six months. The primary reasons given by those seeking credit were to replace an existing loan (cited by 50 percent of those respondents) and/or to obtain additional working capital (cited by 45 percent of those respondents).

The degree of difficulty firms felt they had in obtaining credit was mixed, with about 60 percent of respondents saying they were able to obtain all or most of the bank credit they sought. The small size of the survey (206 respondents) limits the accuracy of any sector-by-sector comparisons. However, it is interesting to note that construction firms stood out as the business type that had the greatest difficulty having their demand for financing satisfied, with 70 percent of them saying they were unable to obtain the funding they sought. That percentage compares with 50 percent of small manufacturers surveyed and 25 percent of retailers responding they were unable to obtain the funding they desired.

Of those businesses that had not sought credit during the last six months, the dominant reason given was poor sales/revenue (cited by 55 percent of those respondents). Other reasons for not seeking additional credit included sufficient cash reserves.

Slightly less than half of respondents expected to try to obtain a loan or line of credit from a bank during the next six months. The reasons given for seeking credit (businesses could give more than one reason) included the need to replace an existing loan (cited by 43 percent of those respondents), the need for additional working capital (cited by 44 percent of those respondents), and the need to purchase equipment (cited by 21 percent of respondents). Among firm types, construction firms anticipated a higher demand for credit than others.

For respondents who were not expecting to seek credit over the next six months, the anticipation of poor sales growth was the most frequently cited reason (cited by 49 percent of those respondents).

There are plenty of caveats that should be applied to these results. For example, the survey respondents represent established, relatively successful firms. We could not, with this effort, capture the experience of firms that have recently failed (perhaps for lack of credit). Nor can we ascertain the businesses that were never formed because they could not obtain start-up funding.

Still, we believe the results of our survey are instructive. To the extent that the firms in our survey are representative, it appears most going concerns have been able to obtain all or most of the credit they need. What they don't have are customers.

Of course, this is a snapshot of current conditions, and things may change as the economy picks up, demand expands, and credit needs grow. And it would be very useful to know what the story is with those firms that have failed or were never created. We are consequently planning to conduct a follow-up survey as 2010 progresses. We'll keep you posted.

By John Robertson, vice president in the Atlanta Fed's research department

Great article and information here!Bank credit is very important when trying to start a business, but not every small business can qualify for a bank loan, especially today. There are other options, one being a business cash advance. It’s cash given up front to businesses when they need it. Depending on how much monthly revenue the business brings in, they don’t have to make monthly payments like with small business loans; instead small debits are automatically taken from batched credit card sales which makes repaying the money much easier.

Small businesses are finding it quite difficult to get approve for a small business loan. Banks and small financial institutions are not taking into consideration the fact that business owners need the working capital to expand their business and create more jobs.
Having said that, they have the alternative to apply for a Small business loan where the financial institution purchases a portion of their future credit card sales, deducting a portion of their daily credit card transactions so the business owner and the financial institution get paid, with very little risk to the business owner.

I don't think the large banks understand small businesses. They tend to be interested in large businesses and consumer debt, particularly credit cards. I really don't see this changing when you see the spread for credit card lending vs. small business loans even considering risk.

In my opinion ,small businesses are finding it quite difficult to get approve for a small business loan. Banks and small financial institutions are not taking into consideration the fact that business owners need the working capital to expand their business and create more jobs.

I believe that as business lending becomes harder for the majority, it is the determination of the individual that will enable them to aquire the neccesarry funds. Thinking outside the box and pulling from resources which they either didn't know were available, or didn't think they had access to.
Funding sources such as venture capitalists provide great benefits and a 'win win' situation for both parties as the business owner offers some of the cream of their crop, in return for a generous return on the venture capitalists investment.
Gives weight to the old saying 'where there's a will there's a way'.
Great overview of what is actually happening in the indstry though.

Living in the UK it is interesting to see a perspective from across the water. Our economy lags the US and it is noteworthy to read of the attitudes of the main lenders towards business loans.

Construction businesses have been hit hard in the UK too and the reluctance of banks to lend to such businesses is partly due to the property bubble that has well and truly burst and the obvious need for many construction loans to be substantial in nature.

I can but hope that business loans become more available in the near future as many small businesses in the UK are finding credit hard to come by.

Of course commercial real estate debt is smaller than the residential real estate debt. While some small businesses are getting killed out there, some are making it happen by taking out small business loans and what not to get through these trying times. However, in a time where personal loans are difficult to get by, individuals can't do the exact same thing, and thus, the residential real estate economy suffers another of many multifarious blows to the gut!

Based on how much per month income the business delivers in, they do not have to make per month installments like with little business loans; instead little debits are instantly taken from batched bank card sales which makes paying the money much easier.

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January 11, 2010

When independence begets accountability

"Politicians are taking bolder actions to influence monetary policy, signaling that the global financial crisis may end up reining in the independence of many central banks…

"In the U.S., Congress has reacted to a tide of populist anger by calling for greater scrutiny of the Fed's actions. A bill with broad support among lawmakers would subject the Fed to more comprehensive Congressional audits and permit lawmakers to delve deeper into Fed decision-making. A Senate proposal would give lawmakers and the White House more say in the governance of the 12 regional banks scattered around the country."

"I'm referring to the 'audit the Fed' amendments that were passed in the House and introduced in the Senate. The audits would be performed by the Government Accountability Office (GAO)… The Fed has no argument with audits in the conventional meaning of the term. We're already subject to many audits by the GAO and external auditors. In government, the word 'audit' can be misleading sometimes. GAO audits can amount to full-blown policy reviews. Fed operations outside of monetary policy are already subject to GAO policy review, so this proposal is about ad hoc, after-action reviews of monetary policy, potentially frequent. In my view, this notion is not about transparency and accountability. Both are bedrock principles to which the Fed should continue to be held. Rather, this is about politicizing a process that should remain apolitical."

The Journal article notes the consensus of students and practitioners of monetary policy…

"Independence is vital for effective central-bank operations, economists and central bankers say. Many decisions, such as raising interest rates to fight inflation, are politically unpopular but considered necessary to effectively manage the economy."

… a view on which President Lockhart elaborates:

"The Fed must have the capacity to make unpopular decisions—to take away the punch bowl, as it were. Many of you remember the circumstances of the early 1980s when the Paul Volcker–led FOMC acted against inflation. One should ask—would Volcker have been effective if the intense opposition to his policies was joined with formal, statutory methods of bringing pressure? The stakes in this issue are big."

The stakes are also big with respect to the second issue mentioned in the Journal article, the governance of the 12 Federal Reserve banks. Again, to President Lockhart:

"I am also concerned about ideas that have been floated that could have the effect—if taken too far—of politicizing the input of regional Federal Reserve Banks in policy deliberations. From its inception, the Federal Reserve System was designed to have checks and balances, to avoid concentration of power in New York and Washington, and to give every region of the country an apolitical voice in policy formulation.

"Let me explain how we work to give voice to people like you in the Southeast… I estimate [before each Federal Open Market Committee meeting] we get input directly or through directors from about 1,000 citizens in the Southeast on ground-level economic conditions and the impact of policy."

In many ways, that understates the role our Bank plays as a boots-on-the-ground, independent voice in the monetary policy process. In 2009, the Atlanta Fed president, first vice president, and Research staff members made more than 400 speeches to an aggregate audience approaching 30,000 citizens in the six states that we cover. We made this effort in the service of two objectives: First, to give the Federal Reserve System a personal face and to explain, as best we could, the hows and whys of Fed actions to a justifiably concerned public. Second, to collect intelligence and feedback, in real time, from the people making real Main Street–level decisions—to give, in President Lockhart's words, "voice to people" in the monetary policy process.

The district bank configuration of the Federal Reserve is the democratic footprint of the U.S. central bank. If ill-conceived legislation concentrates more power in Washington, that footprint will surely fade. And central bank accountability will not be strengthened. It will be diminished.

By David Altig, senior vice president and research director of the Atlanta Fed

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The perception of the Fed as a democratic force is not widely shared outside the Fed.

The line between the Fed's public sector regulatory role, and its shareholder accountable private role is hopelessly muddy to an external observer. The extent to which its participation in bailout/crisis response is public or private debt is likewise opaque to even informed observers. This lack of clarity is the main reason that the Fed has not been assigned as large a role as it has sought in finacial industry regulation reform.

It is not at all obvious that the regulatory role of the Fed and its role as a market participant belong together in a deeply intertwined governance structure. There is a place in our economy for firms responsive to the market, and there is a place in our economy for government regulatory authorities. But, why does the Fed need to do both?

If it is private then less disclosure is necessary, but if it is public than it is a quite non-transparent structure for a government agency and regulator's encouragement of non-disclosures by AIG during the financial crisis have created a crisis of trust that bland policy arguments can't remedy.

I read all your posts and you are one of my favorite bloggers but I don't agree with your defense of the FED in this post. I don't see how we are better off as a nation since congress created the FED (as it is presently structured). Under the Fed, our currency has lost 97% of its value and the country is now facing one of its worst crises with the FED's culpability (Bernanke is way off in his recent speech. Volker (and Martin)did know how to take away the punchbowl but they are the exception. The Fed is already politicized. I'm with Ron Paul-we are better off without the Fed.

The Fed repeats, like a mantra, the fact that ad-hoc audits will jeopardize the independence of policy. What's the "for instance"? I don't think I've heard a single one from them or their supporters. You would do your readers a service by, instead of repeating the mantra as if the conclusion were self-evident, you could take the proposed legislation and depict for us just how it will affect policy-making. After we read this, we could critique it, offer counter-examples, or argue that the benefits (accountability for Fed quasi-fiscal policy) exceed the cost. This is what is called real debate.

To be fair, if your post contained the above supporting arguments, or if you have seen a decent treatment of them elsewhere, please point it out.

The structure of the Fed's meetings is the staff's current view of the state of the economy and the financial system, and forecasts for inflation and growth. FOMC participants then give their views on the same, discuss dissenting points, and vote. Where, exactly, would that process be open to "audit" which affects the outcome? Surely the staff do a capable job and are rigorous in their analysis. Is this open to question by the GAO? And the FOMC's views are inherently each individual's conclusions based on the data. Again, how would the audit affect these? Then there's asset purchases. Here, the Fed could be held accountable for such things as paying market prices for securities. What, exactly, is wrong with that? Surely the Fed has lattitude to estimate fair value where no market price exists, and where one does exist, the Fed should be paying close to it. What about what counterparties the Fed is dealing with? Will the GAO's knowledge of the details affect their fair selection? I wouldn't think so.

I don't think that the FOMC process is a focus of the interest in a GAO audit. Nor is anyone particularly concerned about its day to day managment of the interbank payment system, or its Treasury security trading activities. All of these activities are familiar, have long track records, and can be fully understood with a small amount of information because they have been conducted in the same way for a long time with predictible results.

Instead, I think that the focus of the pressure for a GAO audit is on Fed activities in lending funds to (or buying debts from) businesses in ways that it has not traditionally done.

For example, the Fed has, since the financial crisis, lept into the commercial paper market, made guarantees of money market funds that also have private insurance, purchased a large share of all agency backed (but not federally guaranteed) mortgage backed securities, entered into bailout deals in connection with the FDIC and private parties for failing banks with toxic assets, and more.

Some of this was done under power granted in the Great Depression but never exercised, some of this came from financial crisis related legislation with little legislative history and no precedents or regulations to cabin its use, some of this was simply done, without a lot of regard for where the authority to do so derived.

There is a lot more room for mischief when the Fed becomes an 800 pound gorilla in all sorts of elements of the economy that it hasn't traditionally participated in, than there is when the Fed limits its role to being essentially a market maker in Federally issued securities and a lender of last resort for federally insured banks whose services are very rarely used.

There is also concern that the Fed was not doing a very good job of regulating those parts of the financial sector for which it was the primary regulator. The Fed didn't see itself as that kind of regulator, and the widespread conclusion in hindsight is that it supervised the institutions it was responsible for regulating with a very light hand, even though those institutions were systemically important to the economy. A GAO audit of how the Fed performed is lesser known roles is also in order.

The Federal Reserve should get back to its traditional role as quickly as possible, and cease trading in markets for anything other than full-faith-and-credit obligations of the United States. This includes Fannie/Freddie debt!

The more complex role that the Fed has taken on in the past 1-2 years is too politically charged, and should be abandoned. There are many other ways that the government can react to a financial crisis. If the Fed's retreat creates a gap in the policy options, put that issue on the table. But don't put the Fed into the gap.

The Fed should pull back from the "regulatory" roles that it's supposed to have. That hasn't worked out properly, and it overly entangles the Fed with the banks. The Fed was so entangled that it couldn't take away the punch bowl at the right time. If the Fed cannot do that well, it certainly cannot afford to take the blame for failing. Let someone else have that job, but protect what is essential about the Fed.

The Fed should not be an agency of anything other than pure monetary policy. It should simply manage the elastic money supply.

The Fed should be made far more independent of the banks that it interacts with. The only way to be able to take away the punch bowl is not to be drinking at it, and not to be buddies with the drinkers either.

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January 07, 2010

What's up with the young folks?

All eyes will be on tomorrow's employment/unemployment report, for good reasons. The relative strength of the report will provide yet more essential information on the likely strength of the still young recovery. But as the expansion continues, questions about long-run trends in labor markets will increasingly dominate thinking about what the nation should expect going forward. One important element in interpreting unemployment data is the trend in labor force participation, and it appears as if there are some significant open questions about what the trend looks like.

After growing during the 1980s and 1990s, the aggregate labor force participation rate (the percentage of the working-age population active in the labor market employed or looking for work) peaked in the late 1990s and is currently at levels last seen in the 1980s. But this change pales in comparison to changes in labor force participation among America's youth (those folks in the 16- to 24-year-old age range).

During the 1980s participation in the labor market for youth averaged around 68 percent, a rate noticeably higher than for older individuals. The youth participation rate declined sharply to a level at or below the level for older individuals prior to the 1990–91 recession and then remained relatively stable during the 1990s. However, over the past decade youth labor market participation has been on a steep downward trend and currently stands at a little over 55 percent, compared with about 67 percent for older individuals. Moreover, the most recent recession has seen youth participation rates decline at a rate similar to that seen in the early 2000s. In contrast, the labor force participation by individuals over 24 years of age has varied much less, implying that the decline in youth labor force participation has been a major contributor to the reduction in the overall rate of labor force participation (see the above chart).

It also appears that the decline in youth participation is most dramatic among teenagers, and for that group it is an equally sized decline for both males and females (see the next two charts).

Because schooling is an important activity for young people, the changing pattern of school enrollment is an obvious potential source of change in the labor force attachment of youths. In fact, the proportion of those between 16 and 24 enrolled in school has risen from about 42 percent in the late 1980s to nearly 57 percent in 2008 (BLS, October supplement to the Current Population Survey).

But being in school does not preclude labor market participation. In fact, increasing school enrollment is unlikely to be the only explanation because the increase in the school enrollment rate this decade is less than last decade. Between 1989 and 1998 enrollment increased from 48 percent to 54 percent whereas it increased from 54 percent to 57 percent between 1999 and 2008.

The big change appears to be that those in school have become increasingly less attached to the labor market. The percentage of school enrollees aged between 16 and 24 who are also participating in the labor market was relatively stable between 1989 and 1998 at around 51 percent. However, labor market participation by those in school declined between 1999 and 2008 from 50 percent to 42 percent. In contrast, labor force participation by those aged between 16 and 24 not enrolled in school has declined only modestly—from 82 percent to 80 percent between 1989 and 2008.

There are economic returns (benefits less costs) to both labor market experience and education. The decreased attachment to the labor market of school enrollees likely reflects, at least in part, factors such as the increased lifetime economic returns to education relative to alternative uses of time. As such, a widening wage premium on education is probably an important influence on youths' schooling choices, including schooling intensity. An example would be enrolling in educational programs during the summer instead of looking for summer employment.

It would be good news if increasing long-term rewards to engaging intensively in schooling was the important factor underlying the declining labor force participation by America's youth. Some alternative explanations for the decline could be much more troubling for America's future.

By John Robertson, a vice president in the Atlanta Fed's research department

When I was in high school, I worked 40 hours a week evenings and weekends, mainly because I had to. But that was then.....

The cost of "working" (transportation, insurance, gas, etc) have gone up a lot more than the pay rates. And I'm not mentioning the penalty in lost study time/poorer grades, if the kid is working more than a few hours a week.

Makes no sense whatsoever to have kids work, when their take-home pay (after expenses) is about 2 bucks/hour.

Absurd student loans for massively inflated tuition is what's up with the young folks. Extend and pretend to the end. Their blessed college faculties could not care less, either. Another bubble courtesy of financial "innovation."

This is the biggest reason we need healthcare reform to allow older workers to leave the workforce and employment stimulus to create new work-- the kids need JOBS. Also illustrates why cutting education budgets is so stupid right now when so many kids are in school.....

I don't see an upside to the charts. The continuing decline of the employment-to-population ratio seems to be worsening. While younger workers are being hit the hardest, the labor force participation of the older workers is falling too.

It seems obvious to me... yes, some can be accounted for by higher post-secondary education attendance for 18-24 year olds.

But I can tell you the other, larger cause: we do not create enough jobs in the U.S., and have not for a long time, for the "average" person. Most people don't go to college. The average reading level in the country is 8th grade. The jobs that used to be worked by teens - bagging groceries, filling fast food orders - these jobs are held by adults now, people in their 30s through 70s. Thanks in large part to the lack of growth (or shrinkage, depending on who you listen to) in manufacturing and other similar occupations, we don't have enough work to employ these adults in what used to be a traditional occupation for a high school educated person.

If you were a fast food manager faced with a 40 year old with demonstrable experience, or a 19 year old who had never worked before - who would you hire?

How come nobody brings up the fact that this significant decrease in employment among young workers comes at the same time the minimum wage has increased from 5.15 to 7.25? These numbers make it look obvious that the artificial price floor was set above market equilibrium and has caused a significant disruption in the labor market.

Student loans have become the "new" employment income of young people? As employment opportunities decline, more of them will actually stay in school or return to it.
However, if one analyzes the amount of student loan debt incurred, and contrasts that with the amount of student debt defaults, a pattern begins to emerge.

Are young people essentially living on borrowed money, the way their elders lived on home equity ATM "income"?

The value of all this education becomes dubious when greater numbers of graduates cannot achieve enough gainful employment over time to pay back their educational debt.

Not only does this appear to be wasteful of financial resources (except for the sector who earn all that interest income on the debt.)
But ultimately, wasteful of all that very expensive education.

More college students are participating in unpaid internships than ever before. Experience is a must but corporate America dose not want to pay for it. Welcome to the 21 Century. Higher tuition, increased debt and limited opportunities to help pay you way.

Notice the labor participation rate for Hispanic population was actually increasing during this period. Native-born workers were apparently losing unskilled jobs to this group as a result of mass amnesty and illegal immigration.

For those that wish to blame the minimum wage increase, I have two things for you...

1) Correlation does not prove causality,
2) The inflation adjusted dollar value of the minimum wage peaked at $9.47 in 1968 and fluxuated around the $8.50 mark between 1963 and 1980. Participation was at or near its peak in this time period as well.

The current minimum wage is still far short of these numbers and yet participation is falling. I do believe Mia's comment reflects reality (unfortunately).

I suspect their are a few factors in here, but one with the most probable effect is that of the recent and profound millions of immigrants now in the USA from south of the border.

No judgment here about if that's right or wrong, but something to consider: In Canada you can still find high school kids(citizens) working at burger king(what few there are). Those same Canadians seem to want to come here when they get older to make money.

Minimum wage is not the issue actually. If you cut wages you always create deflation as people simply have less money to spend.

If you don't get the young people into good jobs, they will probably stay poor and in the long run this will cripple you.

Also while there are a lot of young people now (a baby bulge) as a percent of the population, they are declining. The birth rate was only 1.5 or so in the 1970's rising to 2.1 do to massive immigration and fundamentalism. Thats only replacement

What has hurt us are the massive job losses do to outsourcing and automation combined with global wage arbitrage . This lead to a 30% reduction in wages over the last 30 years.

In essence if you normally made say 50k a year, every single year you lose $500 in purchasing power.

Having two workers did little to offset (read Elizabeth Warren's Two Income Trap for details) the loses either. What happened is "we" borrowed to keep up our economy and when that ran out, well... It contracted to where it should be

If you want to fix it, you either massively increase employment and take home pay (about 30%) for a period long enough to pay down the debt, raise savings and fix the infrastructure (a decade will be fine) or you allow the investment/retirement class to take a massive bath and prices to drop by about 1/3 on everything.

This of course very risky with our chronic lack of organizational acumen, we may not be able to juggle the balls well enough to ride out something like that.

California's inflation-adjusted minimum wage is little changed from the late 1980s. Latino manual labor was the norm back then too, so little has changed.

Instead, all the menial jobs I did in high school and college are now held by "real adults." For some reason, a 55-year-old woman will now take a job as a hardware store checker. 25 years ago, she wouldn't, so you had to hire a 22-year-old.

I conclude the culprit is the loss of high-paying jobs once held by older people. Those people then move downward into menial work, displacing the young.

Anyone claiming it is the minimum wage needs to look at the data. Changes in the minimum wage are few and far between -- about once a decade since the 1970s -- and the almost constant decline in the teen participation rate strongly implies that the minimum wage cannot play more than a very minor role in this development. For example, there was no increase in the minimum wage between the 1980 and 1990 recessions, yet the teen participation rate fell throughout that period.

Would someone please explain how an unchanged minimum wage caused the participation rate to fall?

Doc Merlin -- you say it people staying in college longer, but the data is on teens 16 to 19 year old. Do you see how this is inconsistent with your explanation?

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